Argentina Inflation Remedy?

[Joe Leote]

Article discussing Warren Mosler's proposals for Argentina inflation reduction:

Journey to the heart of Argentina - The Gower Initiative for Modern Money Studies (gimms.org.uk)

Money & Macro discussing Argentina Dollarization Proposal:

https://youtu.be/WVAn0DW2asI

Mosler is advocating modern monetary theory (MMT) policies.

Joe

[William Meyer]

Hmm... interesting that both Milei and Mosler advocate debasing the currency.  Translated: you consume too much considering what you produce, your standard of living must go down in order to drive exports and thus the balance of payments.  

MMT in this instance also stands for modern mercantilism theory apparently.  

--
You received this message because you are subscribed to the Google Groups "Understanding Money" group.
To unsubscribe from this group and stop receiving emails from it, send an email to understandingmo...@googlegroups.com.
To view this discussion on the web visit https://groups.google.com/d/msgid/understandingmoney/CAMpwg51%3DNb2jpc1A7B17ox4qr8_N-kSGDkViAs8wtQjqSj%3D4RQ%40mail.gmail.com.

[Joe Leote]

Mercantalism does not include a national job guarantee and governments had to force a flow of gold into the respective Treasury equal to or greater than the outlays in order to hold gold savings.

Modern monetary theory has a job guarantee policy (to set a price floor under the national wage bill) and is not concerned at all with the national gold hoard(s). MMT argues, in essence, that long term debts and past real investments cannot be validated without a price floor in the national economy. Economist Hyman Minsky argues that "prices carry profits" which means prices must rise slightly (mild inflation) to validate past debt and investment levels. But if no one in the market can establish a price floor the debt, credit, and investment markets are subject to disruption by the forces of market psychology. The job guarantee is supposed to be an anchor against deflation, and a public policy that helps solve the problems of unemployment, but I don't think it is an inflation anchor.

Joe

To view this discussion on the web visit https://groups.google.com/d/msgid/understandingmoney/CABEX-nBYoFovvtX4ihsb9UZFNjFbV7-%3De4NhatbjPAMy3J1Erg%40mail.gmail.com.

[William Meyer]

"force a flow of gold into the respective Treasury equal to or greater than the outlays in order to hold gold savings."

Is this really different from forcing a flow of bid volume into the currency equal or greater than the ask volume in order to hold fx reserves?

To view this discussion on the web visit https://groups.google.com/d/msgid/understandingmoney/CAMpwg50MXVkNVQkcdPJiDXHnf16DdKwZVUFWmJiw0Fbn1kMmug%40mail.gmail.com.

[Joe Leote]

List of 12 Mosler proposals with Q & A:

Warren Mosler talks with Grupo Bolivar in Argentina (English Parts Only) - Red MMT España

Central banks can do a currency swap to create government FX reserves with each other from thin air. In terms of private sector international commerce each country has an aggregate bank sector balance sheet. FX exchange for import and export activity is a swap of currency on the aggregate balance sheets. That is the basis for the floating exchange rate currency. If the government wants to peg a currency to another currency in FX markets then it must intervene using FX reserves. China did a FX reserves swap with Argentina recently. China sends stuff to the United States and its government accumulates US dollars as FX reserves. This takes pressure off the domestic currency in the FX markets due to persistent trade surplus.

Gold is a real asset with no matching liabilities. If gold is used exclusively for international trade then the net import nations would run out of gold in the long run. Russia exports food and fuel. Some of its trade partners must import both food and fuel. I don't know if every nation can be a net exporter in the long run. Certainly under bi-lateral trade a country either exports, imports, or balances trade with the bi-lateral partner. The world trade finance scheme has made it possible to run persistent trade imbalances and to default on trade debt without triggering wars. Wars on the other hand seem to trigger financial sanctions and nationalization of stranded assets, etc.

Joe

To view this discussion on the web visit https://groups.google.com/d/msgid/understandingmoney/CABEX-nADAgw48gJ-Ra_J0TBy4BDda8Yu77SGqfyyP4uo5wyZSQ%40mail.gmail.com.

[Joe Leote]

Mosler quote:

"They don’t understand that exports are the real cost and imports are the real benefit, so they’ve got it backwards."

Mosler is a student of finance and economics - not of government policy or international strategy. I think his bias is not wrong and not right either. The bias toward treating trade partners today as hostile rivals tomorrow is equally wrong or right since we don't know the intentions of others or their character in the future.

Importing technology products from China means exporting strategic technological advantages (technology transfer) to China. If you want your enemy to bring a knife to the possible gun fight, then you know why there are good strategic reasons to protect strategic technology and keep it away from potential rivals or enemies. I take the PRC at its word when it publishes the doctrine of Win Without Fighting:

To Win without Fighting (usmcu.edu)

If the cost of low-cost imports is a policy that transfers strategic technology to a potential hostile rival - then I say an ounce of prevention is worth a pound of cure. The ounce of prevention is the cost of managing the strategic rivalry in the present. That does not mean exports, it means the inflation associated with near-shoring and friend-shoring critical industries in the event of war with another Great Power. The pound of cure is the future cost for failing to manage the strategic rivalry over the long run!

Joe

[WilliamM]

MMT isn't all bad.  Running the economy hot and the resulting higher rates is good policymaking.  Higher rates serve as a cap on asset valuation expansion reducing inequality.  You can even view higher rates as a tax on the rich that pays for the spending (though mmt thinkers don't like to describe it as such).  This would all be good progressive policy but look closer and you see their true colors.  By advocating for yield curve control they pull a switcheroo at the last second substituting the asset of the poor - cash - as the release valve rather than securities.  No wonder Bloomberg channel brings on so many mmt personalities.  

[Joe Leote]

MMT holds that paying interest on the public debt is an ineffective means to control inflation. So conventional monetary policy serves no legitimate public purpose. When there is high inflation the government pays even more interest on the public debt and Mosler argues that interest income contributes to inflation. Instead taxes should be increased, using some sort of automatic stabilizer policy mix, to curb rampant inflation. Fiscal policy, the mix of spending and taxes, is the only way to control rampant inflation according to MMT. Permanent zero interest rate policy (ZIRP) allows the government to spend and tax without having to worry about the percentage of the public deficit that goes to paying interest on the public debt. Mainstream macroeconomics holds that monetary policy is more effective for controlling rampant inflation while fiscal policy is usually much less effective.

Joe

To view this discussion on the web visit https://groups.google.com/d/msgid/understandingmoney/fcd2b96d-0cce-4c4d-b458-1db9eab347e7n%40googlegroups.com.

[William Meyer]

But how to tax the wealthy?  Income tax is ineffective because the wealthy live off assets, not so much income.  They borrow against their assets for their spending needs (and never sell them so capital gains tax is ineffective as well).  A wealth tax has been tried in a few places but is hard to implement/doesn't work.  The only way to shrink their ability to command resources (tax them) is higher interest rate (that I can see anyway).  

To view this discussion on the web visit https://groups.google.com/d/msgid/understandingmoney/CAMpwg51m3C9nZH1Mv7A%3DK11BCBVf0JD2%3DhDwizkft20-%2Bf_ssA%40mail.gmail.com.

[Joe Leote]

Okay so in my mind the political-economic debates in macroeconomics are ethical on two levels. First ethical question, What is good? Second ethical question, How should one act to cause the good? Or What is the best means to cause the good? Third question, in terms of psychological development, is Who do I want to be like? In my experience most human behavior is rooted in the bodily effort(s) to answer these three questions in a wide variety of sensory contexts.

Most economists agree, with the exception of the Austrian school, that in a society with long lived real assets and long term debt, mild inflation is good, and Hyman Minsky argues that it is good because in aggregate it is necessary to validate past debts and the nominal cost of past real investments. If long term investments are good and funded by debt then mild inflation is necessary to ensure sufficient marginal income to repay debt and make a profit on investment in assets. In practice that means expansion of the banking sector balance sheet and/or the central government balance sheet. 

What is the best means to cause the good, that is, to cause mild inflation? MMT argues that fiscal policy is the best means to cause mild inflation. Mainstream macro argues that monetary policy (under the control of a politically independent authority, the monetary authority or central bank) is the best means to cause mild inflation. 

The Great Depression and Great Recession in the United States more or less prove that systemic debt default is deflationary and harmful to the economy. The episodes of inflation have no clear cause and are often blamed on fiscal policy although any man-made or natural disaster causing a shortage in the real economy, such as a shortage of food or energy, can cause an inflation impulse. One might argue that imposing taxes on the rich, or other people who cause marginal inflation, is mission impossible. But raising interest rates via the central bank, which causes the marginal restriction of credit in society, is a better means to curb rampant inflation. To me there are two financial causes of inflation: the central government deficit; and the expansionary credit system including, but no limited to, the nominal size of the aggregate bank balance sheet. If a bank wants to impose taxes on its customers it just raises its fees. If all bankers do so at the same time, and the government does not prohibit such charges, then banks effectively have power to drain some money supply via imposing a privatized tax in the form of bank fees.

Joe

To view this discussion on the web visit https://groups.google.com/d/msgid/understandingmoney/CABEX-nD6MD8B%3Dp3TvM%3D4GVU1Bj83o4TbfeH-Cpwo9bVXYYfWJA%40mail.gmail.com.

[William Meyer]

Did Minsky approve of MMT?  He passed in 1996 so he probably would have been familiar with Mosler, Wray etc but maybe not Kelton.  

To view this discussion on the web visit https://groups.google.com/d/msgid/understandingmoney/CAMpwg50Z%2BNiG6202y7S3%3DA0hRvvCPhzp0%2BQTcPTXChYVu1QXwg%40mail.gmail.com.

[Joe Leote]

Hyman Minsky published Stabilizing an Unstable Economy (I think around 1986). He describes the operation of banks, money markets, and the evolution toward big government capitalism in the United States. Minsky advocates for fiscal policy in the form of automatic stabilizers to maintain mild inflation. Employer of Last Resort is a plank in this policy. I don't think Minsky criticizes or discounts the effectiveness of monetary policy via the central bank. He says the government must pay interest on the debt to induce the private sector and regional or local governments to hold the Treasuries.

L. Randell Wray, one of the self-proclaimed founders of MMT, took courses instructed by Hyman Minsky. These links are two long video talks given by Wray relating to Minsky, MMT, and financial capitalism:

Minsky and MMT (youtube.com)

Aulas 6 | Minsky and Financial Keynesianism | Prof L. Randall Wray (youtube.com)

I don't know if Minsky would agree with all the distinct major arguments of MMT. But there is much in common concerning the importance of using fiscal policy to stabilize the economy and that only the central government can afford to pay for public policies that would guarantee everyone a living wage. The problem with federal job guarantee is organizing local governments to ensure that there are useful jobs in all the local communities. It is a political organization problem not a financial problem based on the (imagined) lack of funds. 

Joe

To view this discussion on the web visit https://groups.google.com/d/msgid/understandingmoney/CABEX-nA-b6bz9Q5o6nhMazYiGrpH-dMwkhBAKD3THWUe6SMT2A%40mail.gmail.com.